Agreement of Balances Guidance 2017-18 - Department of Health & Social Care
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Department
of Health &
Social Care
Agreement of Balances Guidance 2017-18
February 2018Title: Agreement of Balances Guidance 2017-18
Author:
Libby Kerr /Finance/Accounts and Operations
Document Purpose:
Guidance
Publication date:
December 2017
Target audience:
DH Group Bodies
Contact details:
Libby Kerr
Agreement of Balances Team – Accounts and Operations
Room 2S14, Quarry House
Department of Health & Social Care
Leeds
LS2 7UE
You may re-use the text of this document (not including logos) free of charge in any format or
medium, under the terms of the Open Government Licence. To view this licence, visit
www.nationalarchives.gov.uk/doc/open-government-licence/
© Crown copyright
Published to gov.uk, in PDF format only.
www.gov.uk/dh
2Agreement of Balances Guidance 2017-18
Prepared by Department of Health & Social Care, NHS England and NHS Improvement
3Contents
Contents................................................................................................................................................ 4
Executive summary .............................................................................................................................. 6
Introduction to the Guide ..................................................................................................................... 6
1 What is AoB? ................................................................................................................................ 7
2 AoB Best Practice......................................................................................................................... 9
Further Reading – HfMA Practical Guide .............................................................................. 10
3 Creating and Sending Statements ............................................................................................. 11
Creating the Statement ........................................................................................................... 11
Good Practice ......................................................................................................................... 11
When statements should be sent .......................................................................................... 11
Accruals Statements .............................................................................................................. 12
Issuing the Statements ........................................................................................................... 13
4 Agreeing to the Balances Received .......................................................................................... 14
Checking the Statements ....................................................................................................... 14
Confirming Agreed Balances ................................................................................................. 14
Timing of Responses .............................................................................................................. 16
Agreeing to Accruals .............................................................................................................. 16
Summary of thresholds for issuing and agreeing to statements ........................................ 17
5 Completing the forms ................................................................................................................. 18
Overview of data collection .................................................................................................... 18
Notified Balance ...................................................................................................................... 18
Adjustments ............................................................................................................................ 19
Capital Adjustments ............................................................................................................... 20
Disputes .................................................................................................................................. 20
Accruals ......................................................................................... Error! Bookmark not defined.
6 Areas of potential Issues ........................................................................................................... 22
Gross and Net Accounting & Recharges .............................................................................. 22
I&E - Admin and Programme Split ......................................................................................... 26
I&E - Admin and Programme Split – NHS Property Services............................................... 26
Hosted Budgets ...................................................................................................................... 27
Hosted Services (Agency Arrangements) ............................................................................. 27
Specialised Commissioning................................................................................................... 28
Deferred Income...................................................................................................................... 29
PDC, Loans, Grant in Aid and Parliamentary Funding ......................................................... 29
Transfers under Absorption Accounting .............................................................................. 29
Partially Completed Spells (PCS) – Incomplete Spells......................................................... 30
Maternity Pathway Prepayment/ Partially Completed Spells ............................................... 30
Non Contracted Activity (NCA’s) ........................................................................................... 31
Treatment of NCA’s ................................................................................................................ 31
Unvalidated/Estimated Activity .............................................................................................. 31
Contract Penalties .................................................................................................................. 32
Pooled Budgets ...................................................................................................................... 32
Better Care Fund ..................................................................................................................... 32
Sustainability and Transformation Fund (STF) ..................................................................... 32
Negative Balances .................................................................................................................. 33
Additional guidance for Credit Notes .................................................................................... 34
Additional guidance for Unallocated Payments ................................................................... 34
Provision for Bad Debts ......................................................................................................... 34
Other provisions ..................................................................................................................... 34
Charitable Funds..................................................................................................................... 34
Non-invoiced Income .............................................................................................................. 35
Recording Transactions in the Correct Year ........................................................................ 35
47. Agreement of Balances 2017-18 – Recording Sub-Entity Transactions ................................. 36
Balances with NHS England................................................................................................... 36
Balances with Other Bodies ................................................................................................... 38
Balances with NHS Business Services Authority................................................................. 39
VAT .......................................................................................................................................... 40
Nursing and Midwifery Council.............................................................................................. 40
The Health and Care Professions Council ............................................................................ 40
Wiltshire Health and Care....................................................................................................... 40
NHS Resolution (formerly NHS Litigation Authority) ........................................................... 40
Part year NHS Foundation Trusts .......................................................................................... 41
Reorganisation of providers involving transfer of services ................................................ 42
Subsidiaries ............................................................................................................................ 42
8 Variance Reports and Resubmissions ...................................................................................... 43
9 Resolution of Disagreements .................................................................................................... 45
Annex 1 – Examples of Statements ....................................................................................... 46
Annex 2 – Whole of Government Account – Agreeing and recording balances ................ 47
Annex 3 – Agreement Examples ............................................................................................ 50
Annex 4 - Role of the Department of Health & Social Care and other bodies..................... 54
Annex 5 – NHSE coding for Hosted Services ....................................................................... 56
NHS England Appendices.................................................................................................................. 57
Appendix 1 .............................................................................................................................. 57
Appendix 2 – due to its length, document now separately published at
https://www.gov.uk/government/publications/the-department-of-health-and-social-
care-agreement-of-balances .............................................................................................. 58
Appendix 3 .............................................................................................................................. 59
Appendix 4 .............................................................................................................................. 61
5Executive summary
Introduction to the Guide
This guide is designed to provide practical guidance for the completion of the Department of
Health & Social Care (DH) Accounting Group Agreement of Balances exercises.
While the Department of Health & Social Care Group Accounting Manual (‘the Manual’) outlines
the principles of the exercise including the associated accounting principles, this guidance
includes more details of how the exercise should be completed in practice. The guidance should
therefore be read in conjunction with the guidance within the Manual.
The following definitions will apply to Agreement of Balances (AoB), and will be used
throughout the guidance:
Receivable organisation - this is the organisation sending the invoice/is carrying the
trade receivable/is receiving the income (i.e. the supplier or provider) unless using net
accounting (see section 6 and/ or Appendix 4)
Payable organisation – this is the organisation receiving the invoice/carrying the trade
payable/recording expenditure (i.e. the purchaser or commissioner unless using net
accounting (see section 6 and/ or Appendix 4)
The definitions apply when referring to both Payables/Receivables and Income/Expenditure
agreements.
For the purpose of this guidance document, the “national bodies” means the Department of
Health & Social Care, NHS Improvement and NHS England see section 7 of this guidance for
the processes to follow in agreeing balances with NHS England and its entities.
61 What is AoB?
1.1. The Department of Health & Social Care (DH) is required to consolidate the
accounts of all organisations falling within the accounting boundary, as
expanded by the Constitutional Reform and Governance Act 2010 (HM
Treasury’s alignment legislation). Under International Financial Reporting
Standard 10 (IFRS10) paragraph B86 consolidated statements should
“…eliminate in full intragroup assets and liabilities, equity, income, expenses
and cash flows relating to transactions between entities of the group”.
1.2. The AoB process seeks to identify all income and expenditure, transactions
and payable and receivable balances that arise from the contracts for the
provision of goods and services between group bodies (i.e. intragroup), to
allow for accurate elimination of these transactions and balances within the
Consolidated Departmental Account and for the preparation of the
Department’s Whole of Government Consolidation Return to HM Treasury.
NHS Improvement and NHS England also eliminate transactions and
balances between their group bodies in preparing their sector specific
consolidated accounts.
1.3. Additionally, it forms an essential part of an organisation’s financial
management ensuring that an organisation’s payable and receivable balances
are correct.
1.4. Agreement of Balances has historically been completed three times a year at
Q2, Q3 and Q4. In 2017/18, for the first time, the Q2 agreement exercise is
voluntary (although the issue of statements remains a requirement). The Q2
exercise continues to be for receivables and payables only and does not include
agreement with local authorities and other government departments. Agreeing
balances at Q2 is not mandatory - however as best practice we would encourage
organisations to participate in discussions where there is a need to do so locally
to resolve significant issues. Submission of agreement of balances data is not
required at Q2. At Q3 and Q4 submission of all agreement of balances data and
balances and transactions with local authorities and other government
departments is required. Group bodies are required to agree balances and
transactions with bodies within the WGA boundary where the balance or
transaction exceeds the WGA agreement limit. Local authorities, NHS Trusts and
Foundation Trusts and Public Corporations are exempt from WGA agreements.
Further information on agreeing balances with WGA bodies is available from
gov.uk
1.5. The exercise completed at Q3 contributes to the Department of Health &
Social Care Consolidated Interim Accounts. The exercise looks to agree both
outstanding payables and receivables and income and expenditure for the
year to date, As well as providing figures for the interim accounts, any issues
arising since Q2 can be addressed, for resolution before year-end. It also
provides an indication of any issues which DH and consolidating entities may
need to resolve in preparation for year-end.
71.6. The exercise completed at Q4 contributes directly to the year-end production
of the provider sector, NHS England and Department of Health & Social Care
Consolidated Final Accounts. This exercise includes an Income and
Expenditure agreement exercise (incorporating a £2m de minimis threshold
for sending out statements and undertaking agreements). Accruals
statements should be sent and discussions should take place and wherever
possible agreed, although formal agreement of accruals is not required.
82 AoB Best Practice
From discussions with the NHS, the following examples of best practice have
been identified:
2.1. As a receivable body, provide as much information as possible – by
issuing the statements with adequate information, as set out in section 3, the
payable body will be better able to identify amounts that may be outstanding,
and this will assist in the resolution of problems that may arise when agreeing
balances.
2.2. Send the statements to the correct contact – issuing the statements to the
contact listed will ensure that the correct person in the agreeing body receives
the statement. Organisations should also quote their organisation code in the
subject line of the email. Please note the process for sending statements to
NHS England as per section 7 of this guidance. Statements must be issued
on time and in accordance with the timetable available on the Gov.uk website.
2.3. Wherever possible conduct correspondence electronically – issuing and
responding to statements by email allows more time for agreement.
Statements should also be issued in excel format.
2.4. As a payable body, respond to the statement as soon as possible –
statements should be returned as soon as possible to the receivable
organisation (quoting your NHS organisation code in the subject line of the
email), especially where balances are not fully agreed. This will allow more
time for resolution of problems.
In addition, where the payables organisation is including a balance which the
receivables organisation may not be expecting (e.g. accruals during Q2/Q3,
converting a negative payable to a receivable etc.), it is good practice to
inform the receivable body as this will enable them to either match your
treatment or explain any remaining variance.
2.5. Complete the exercise within the agreed deadlines – deadlines are agreed
in advance of each exercise by DH and its National Bodies to give participants
adequate time to complete their parts.
2.6. Do not chase for statements or response until the deadline has passed –
To allow organisations time to complete their exercise within the deadlines it is
requested that they are not “chased” for responses before the deadline has
passed. Priority must be given to those balances within the remit of the
exercise.
2.7. Complete the data collection forms correctly – to enable DH and its
National Bodies to see the overall balance for elimination, and to be able to
correctly determine where variances exist, it is important that balances are
recorded in the correct part of the collection templates. This is especially
important at Q4 when the AoB forms must agree to the accounts information
submitted at the same time. Further details can be found in section 5.
9Balances should not be adjusted erroneously; especially when being asked to
resubmit balances when material variances occur. In no circumstances should
balances be adjusted simply to bring a variance under the tolerance set – see
sections 8 & 9. Such manipulations actually serve to increase the total
mismatch across the sector and increase the likelihood of there being
additional AoB processes and resubmissions.
2.8. Provide reasons for adjustments where requested – where collection
forms provide freetext cells to record why any material adjustment balance
has been included, please provide those explanations. It will save time at
year-end if this could be completed upon the first submission of balances. The
freetext explanations can enable the Department to make central adjustments
and or justify the impact of the mismatch to Department’s auditors, reducing
the need for further resubmissions.
Further Reading – HfMA Practical Guide
2.9. In 2014, HfMA published a very helpful and detailed practical guide to
agreement of balances in the NHS. Organisations may wish to refer to this as
an additional guide for establishing best practice. The guide is available from
the HfMA website (http://www.hfma.org.uk/).
2.10. However, for clarity and in case of query, the guidance in this document
(issued by DH and its national bodies) takes precedence.
103 Creating and Sending Statements
Creating the Statement
3.1. The issued statement should contain sufficient information to allow the
payables organisation to identify invoices that have been issued (I&E) or are
outstanding (Rec & Pay) by the receivable organisation up to and including
the final invoicing date. The minimum requirement for a statement is:
The date the invoice was issued
The invoice number
The total amount of the invoice
The amount of the invoice which is unpaid (Rec & Pay)
The name of the receivables body the agreement is with.
The name of the payable body the agreement is with
I&E Only – whether the balance is considered Admin or Prog (see
section 6)
A contact phone number for queries and disputes
3.2. Additionally, it is helpful if the statements include purchase order numbers
relating to the invoices, a description as to what the charge is for, the name of
the contact within the agreeing organisation who had commissioned the
service being provided and whether the invoice is being treated as a recharge.
A description is particularly important when a purchase order number isn’t
included or when the charge is included on the accruals statement at Q4.
3.3. Where a statement includes an invoice that relates to a future period, this
should be identified on the statement. If neither party is accruing for this in the
period (for example a month 10 invoice issued in advance during month 9),
this should be identified on the statement so that both parties can adjust the
item out in the ‘adjustment’ column in order to achieve consistency with the
ledger balance.
Good Practice
3.4. As most payables organisations keep a log of the balances they have been
sent to agree in preparation for balance collection, statements should be
issued in excel format by email, quoting your NHS organisation code in the
subject line of the email.
3.5. Scanned images should be avoided in all cases as they are difficult to
manipulate and transfer into excel. The issue of statements in PDF format
should be avoided where possible as it is time consuming to extract the
information in the PDF file to use within spreadsheets.
When statements should be sent
3.6. As there is a requirement to record all balances with a counterparty,
regardless of whether the balance is below the de minimis levels for
11agreement (see section 5), statements should be issued in the following
circumstances:
Income statements should be issued in all circumstances at Q3 where the
year to date total gross balance is greater than £10k. Balances below this
level may be issued if the receivable organisation chooses to do so. At Q4
the de minimis level is £2m.
Receivables statements should be issued in all circumstances where the
outstanding balance is £2.5k or above. Balances below this level may be
issued if the receivable organisation chooses to do so.
Nil balances should not be issued in any circumstances – if the payables
organisation thinks they should have a balance with the receivable
organisation, it is up to them to discuss the issue with the receivables
organisation after the deadline for statement issue has passed.
3.7. Statements containing balances for multiple payables entities should not be
issued in any circumstances. A separate statement should be completed for
each payables body. Refer to NHS England Guidance at section 7.
3.8. One statement should be sent per organisation, to ensure the correct balance
is recorded on collection. Therefore, where the receivable organisation has
multiple customer accounts for a single entity, or they are hosting services (as
defined in section 6), a statement of all balances should be issued, with the
exception of NHS England (see section 7 for more information).
3.9. Where an NHS Trust becomes an NHS Foundation Trust part-way through
the year, it is necessary to send statements to the appropriate body. For
example, if a Trust becomes an FT on 1 March, at Q4 receivable statements
should be sent to the NHS Foundation Trust only, but where income
statements are sent, these should be sent to the organisation with which the
transaction took place (see 7.34-7.37 for further information).
Accruals Statements
3.10. At the year-end, an additional accruals statement is sent, to capture the
accruals that organisations will have made during their year-end processes. It
is vital that there is sufficient information on the statements to allow approval
of the balances, particularly if invoices are raised late or not at all.
3.11. Accruals statements should include the same level of information as the usual
statements. Accruals statements should include the following:
April dated invoices that relate to goods and services delivered in the
previous financial year.
Any further payments received since the cut-off point and the end of the
accounting period provided in the AoB timetable.
Accruals for goods or services provided during the year for which an
invoice has not been issued.
Any other receivable or payable balances (including prepayments and
deferred income) for trading balances in the current financial year that you
12would expect to include as part of your final balance. This should include
non-invoiced income including grants.
3.12. Where material balances need to be estimated, the receivable organisation
should ensure that the statements include as much detail as possible on the
estimation technique/ methodology to allow the agreeing body to recognise
and include a matching accrual in their own accounts.
3.13. It is important that all accruals are raised, and statements issued in order that
both organisations reflect the correct expenditure and income in the
appropriate year to avoid timing differences and allow the transactions to be
eliminated within the group account.
Issuing the Statements
3.14. Statement should be issued electronically by email. Statements relating to
payables and receivables for organisations within the NHS England group will
be issued by NHS Shared Business Services. Statements relating to income
and expenditure are produced locally. Please see section 7 of this guidance in
respect of statements for NHS England group bodies. Statements should be
issued in accordance with the timetable available on DH.gov.uk.
3.15. Contact lists will be circulated by your national body and are updated prior to
each agreement exercise. Organisations should, wherever possible, use
generic email addresses as these are less likely to change. It is also therefore
extremely important that both payable and receivable organisations check the
contact list for their sector thoroughly and update their details whenever the
persons completing the agreements exercise changes. Failure to do this will
result in potential mismatches being left unresolved. Contact changes should
be notified to the sectors’ national body, clearly denoting this as an AoB
contacts change. Any revisions to future contact lists will be highlighted in
yellow, so organisations need to ensure they have the latest version prior to
each exercise. (Submissions for changes should not be sent directly to
DH).
3.16. A general update of the contacts list is undertaken in advance of each
agreement of balances exercise. Contact lists are provided for DH and the
DH Arm’s Length Bodies and are updated with the same regularity as the
NHS Group contacts.
3.17. The contact lists are password protected, in order to try and reduce the
number of unsolicited emails organisations have been receiving. The
password will be sent to organisations at the start of the exercise by your
national body.
134 Agreeing to the Balances Received
Checking the Statements
4.1. On receipt of the statement from the receivable organisation, the payables
organisation should check the list of balances against their ledger to
determine whether they agree to the amounts listed. It should be noted that
this agreement forms an agreement that the balance is correct and is
outstanding for payment. It is not an agreement that the balance will be paid.
4.2. If the invoice is not on the sub ledger, or full approval has not yet been given,
then the payable organisation should carry out further investigation into
whether the balance can be agreed in principle. This may be through further
communication with invoice approvers, or by contacting the receivables
organisation for further details.
4.3. In the case of Income and Expenditure balances, the payables organisation
should check their expenditure reports to make sure that they have the listed
transactions recorded in the current financial year. If it is recorded within the
general ledger for the same year as the AoB exercise then this would be a
transaction that can be agreed.
4.4. In the event that the transaction does not appear, the payables organisation
will need to investigate the circumstance. It may be that the transaction needs
to be accrued for, or that the transaction is shown as being for a prior or future
financial year, or additional information is required regarding the transaction to
be able to locate the amounts.
4.5. It is good practice for the payables organisation to prepare reports of
outstanding payables balances/expenditure for the year to date in advance of
receipt of the statement. This will allow the payables organisation to know in
advance who they are expecting to receive a statement from, and will allow
the organisation to quickly follow up any statements not received. However,
requests for statements should not be made in advance of the deadline.
Confirming Agreed Balances
4.6. Prior to the AoB exercise, a de minimis level is set for responding to
statements. The level is set to ensure that a significant amount of intra-group
balances are agreed between organisations, while also removing the
requirement to chase other bodies for small payments. The exclusion of
smaller amounts from the AoB exercises does not mean that these amounts
should not be paid within the course of an organisations regular business.
4.7. For the 2017-18 financial year, the de minimis level for I&E is set at £100k at
Q3. The de minimis level for Rec & Pay agreement is also set at £100k for all
exercises. This means that where the net total of all invoices notified by the
receivables body (inclusive of credit notes) is above this level, confirmation of
the balance agreed to should be issued to the receivables organisation. At
14Q4, the de minimis level for I & E is set at £2m, to avoid unnecessarily
increasing the burden on organisations. Details can be found in the table in
section 4.15 of this guidance.
4.8. Although there is no requirement to issue a return on balances below these de
minimis levels, they still need to be included within the total balances recorded
on the collection forms against the relevant receivable body – see section 5. It
would be considered good practice to issue a return to receivables bodies
where a formal dispute is likely to be (or has already been) raised on some or
all of the balance. Examples may include where you do not agree to the total
invoiced or you are aware that invoices for another organisation have been
issued to you (see worked examples at Annex 3).
4.9. On responding to the receivable organisation, the payable organisation
should, wherever possible, complete the statement template that has been
issued to them. If no pro forma has been provided for completion, then the
payable organisation should include the following in their response:
The invoice number and outstanding balance as indicated by the
receivable organisation on their statement.
The amount of the invoice which is agreed to (or agreed to in principle)
– i.e. the amount which the payable organisation has approval to pay.
The amount of the invoice which is not agreed to, but not yet in formal
dispute
The amount of the invoice which is to be taken to a formal dispute – i.e.
the amount which the payable organisation will not approve for
payment, and for which the dispute will be formally raised for
mediation.
Where balances are not agreed in full, a description of the requests for
additional information is included.
4.10. When communicating approval it is important to distinguish the balance on an
invoice that has been approved and agreed to, from the balance which has
not. For example, if an invoice is for £30k for a secondment of 30 days’ work
(at £1k per day) but the person only did 20 days, the expectation would be
that the payables organisation agree to the 20 days worked, but not agree to
the other 10 days. On responding, it would be expected that the payable
organisation would therefore agree to £20k, but not agree (either through
formal dispute or otherwise) the remaining £10k. Discussion would then occur
between the payable and receivable organisation. In this instance, the
receivable organisation would need to adjust their income and receivable
amounts in their accounts because they have over-invoiced. Both
organisations would record a negative adjustment in the “adjustments” column
or a revised statement can be issued with prior agreement from both parties
and the new amount will be recorded in the Notified column.
4.11. In the example given in 4.10, it would not be appropriate for the payable
organisation to disagree or dispute the entire invoice balance. Details on how
this would be recorded on collection can be found in section 5, and there are
further examples given in Annex 3.
15Timing of Responses
4.12. The deadline for responding to statements issued is agreed between the
Department of Health & Social Care and its national bodies, in advance of the
exercise. Payables organisations should ensure that a response should be
issued to all statements with a balance greater than the de minimis level
before the deadline passes.
4.13. Additionally, wherever possible, the payable organisation should attempt to
issue a response to the receivables organisation as soon as possible in
advance of this deadline if they are aware that they will not be agreeing to the
statement balance in full. This is to let the receivables organisation know
about any problems they may not be aware of, and ensure that if information
is requested from them they have time to act in advance of the deadline as
the receipt of additional information may allow balances to be fully agreed.
This will also allow time for the receivable organisation to reallocate balances
to the correct organisation if they were allocated incorrectly initially.
Agreeing to Accruals
4.14. During the exercises at Q2 and Q3 there is no requirement for the receivables
organisations to issue accruals statements; however an additional column has
been inserted into the Q3 data collection forms to separately identify accruals.
Accruals must be recorded within the collection forms for all exercises to
ensure that the ‘total’ figure reflects the true ledger position. At Q4 an
accruals statement must be issued and discussions between the two parties
must take place, as per the Q4 timetable. Many accruals originate with the
payables organisation, such as where goods or services have been supplied,
but no invoice has been issued for the goods yet.
4.15. Variances may arise where no such discussion has taken place. These
variances can be overcome through discussion between agreement bodies
outside of, or in advance of, the agreement exercise to ensure both bodies
can agree on the amounts that are due. It is important as part of ongoing
business, that payables organisations seek to obtain invoices for goods
received where they have not been sent in reasonable time. It is also
important that payables enter into discussions regarding estimates.
16Summary of thresholds for issuing and agreeing to statements
Area Policy - Issuing Policy – Agreeing
Statements Statements
Q2 R&P £2,500* £100,000**
Q3 R&P £2,500* £100,000
Q3 I&E £10,000* £100,000
Q3 accruals No statements* No statements
Q4 R&P £2,500 * £100,000
Q4 I&E Statements to be issued Statements and
over £2m.* agreements over £2m
Q4 accruals No de minimis* Statement issued but
agreement not mandatory
* Note that organisations are still able to send statements at a lower level than these
if they have automated processes for issuing statements and wish to continue doing
so.
** Suggested threshold for voluntary agreements
175 Completing the forms
5.1. In Q3 and Q4, following on from the agreements process, both payables and
receivables organisations are required to report their receivable/payable and
income/expenditure balances to the Department (or its National bodies),
through Provider Finance Return (PFR) forms, NHS England data collection
form (NHS England group bodies) or Consolidation Schedules (ALB/NDPBs).
The term “data collection form” will be used in this guidance to refer to all the
above forms, and any other form used for submitting balances under the AoB
exercise.
Overview of data collection
5.2. Each of the payables, receivables, income and expenditure are split into a
further four parts:
Notified
Accrued
Adjusted
Disputed (Payables/expenditure only)
Total – this is the amount which is validated against the value of
payables and receivables or I & E included in the accounts notes. It is a
protected cell containing a sum: Notified + Disputed + Adjustments +
Accrued = Total. Organisations are not expected to calculate their own
totals.
5.3. For income and expenditure only, the above columns are split between admin
and programme. More detail on this split is provided in section 6 of this
document. (Note: NHS Trusts and Foundation Trusts income and expenditure
is all programme, so this split is not relevant).
5.4. Some data collection forms contain a tab separate to the balance agreements
where a justification of the figures can be included. Where any adjustments or
disputed balances are included, the gross balance across each organisation
type is included within the freetext tab on DH forms.
5.5. The following subsections show what type of balance should be recorded in
each column, and Annex 3 provides examples of how this may work in
practice.
Notified Balance
5.6. In all circumstances, the invoiced balance included on the statement issued
by the receivables organisation should be recorded under “notified” if the
statement has been addressed to the correct organisation. This balance
should be reflected within the payables organisation “notified” total. This is to
show that both parties have the same starting position, and therefore where
the overall total does not match between two organisations, this is due to true
18disagreements on the balance recorded elsewhere. This balance should be
static, and should not change throughout the exercise.
5.7. The exception to the above is accruals – which should be separately identified
on statements. This figure should reflect accruals ledger balances at each
quarter exercise, although due to ledgers closing at Q3, it is likely that any
changes agreed between parties in the accruals column, will reflect a
divergence from the ledger balance. At Q4 an accruals statement is issued,
and discussions should take place to ensure the accruals figure is consistent
between counterparties and agreed wherever possible. However, despite the
value of the accrual statement, organisations should always ensure their
accruals ledger balance is shown in the accruals column – statements are
sent at Q4 to inform the discussion.
Accruals
5.8. Accruals are recorded separately in the data collection form.
Organisations should report accruals in this column, in order to separately
identify accrued balances. For Q3, accruals must be recorded in the
accruals column based on the information held in ledgers. At Q4, a
separate accruals statement is issued and discussions should take place
between organisations to ensure accruals amounts are consistent
between counterparties and agreement should take place wherever
possible, although the figure recorded should still represent the ledger
balance. Although accruals statements are not issued at Q3 it is vital that
organisations report the figures and mismatches arising from any issues
with accruals still form part of the mismatch resolution stage.
5.9. Where a balance cannot be agreed prior to the agreement deadline due to
un-validated invoices, an adjustment should be made to the notified
balance (via the adjusted column), and where invoices received prior to
the deadline stated in the timetable have not been validated, every effort
should be made to accrue for the transaction / balance to avoid
mismatches. It is not acceptable for mismatches to arise purely because
the payable organisation has not yet validated an invoice sent before the
deadline specified in the AoB timetables.
Adjustments
5.10. An adjustment may be recorded in a number of circumstances. In the majority of cases
this will be used to show an amendment to the ”notified” balance, where the invoices
have not been received or where part or all of the invoice cannot be agreed, but has not
been formally disputed. It may be used by the receivable organisation to show
adjustments to their own balances where too much or too little was initially notified.
5.11. Receivables Adjustments: A positive or negative adjustment could be made where there
is a change in the receivables balance since the statement was issued. This could be
19due to individual amounts listed on the statement being lower than the outstanding
amount or a missing receivable being identified as a result of discussions with a
counterparty.
5.12. Payables Organisations: A positive or negative adjustment may be recorded where the
receivable organisation gives late notification of an invoice, or notifies that the balance
previously included on the statement was too low, or where a future period invoice is
included on a statement. These adjustments may subsequently cancel out if they cannot
be approved. A positive or negative adjustment may also occur due to invoices
appearing on your own reports that were not included within the statement you have
received but which you still have as outstanding. In the case of missing invoices, where
the payable organisation is aware of the invoice, every effort to obtain the invoice from
the receivable organisation should be made.
5.11. Annex 3 contains more detailed examples of where an adjustment balance may be
recorded.
Capital Adjustments
5.12. Capital income and expenditure should be included in the issued statements, and
should be clearly marked as such. The total notified amount on the statement should be
included within the ‘notified’ column. The organisation(s) treating the
income/expenditure as capital, should then enter the balance as a negative amount
under the ‘adjustments’ column to remove the capital element from the overall trading
totals being agreed. This may result in an unavoidable mismatch between the
organisations.
5.13. For example, the receivable organisation may have supplied a member of staff to the
payable organisation. However, the staff member may have been working on the
development of software at the payable organisation, and therefore the payable
organisation will not be recording the cost of the staff member as expenditure but rather
it would capitalise the cost. As a result, on analysis of their expenditure, the payable
organisation would not have the staff cost to match against the receivable organisation’s
staff income. In this instance, the payable organisation should adjust out any
intercompany transactions relating to capital expenditure in the ‘adjustments’ column.
Disputes
5.14. Balances recorded within the ‘disputed’ column must represent a reduction in the
balance (i.e. a negative value) entered by the payable organisation to reflect a formal
disagreement. A disputed item should never be positive, as logic dictates that
organisations would never dispute that they owed a greater amount. A dispute would
occur in a situation where the payables organisation has completed its investigation into
the balance, and has determined there is no agreement to pay. This may be due to a
contractual disagreement over the amount which should be paid. There must be
intention by the payables organisation to take the invoice to mediation or undertake the
formal dispute process set out in the contract. Any disputed invoices should be notified
in writing to the counterparty organisation.
205.15. Receivable Organisations: A disputed balance should not be recorded on the data
collection form under any circumstances. As it would not make sense for a receivable
organisation to formally dispute their own invoices, the data collection forms do not
allow a dispute to be entered. The expectation is that the receivable body will enter all
transactions it expects to receive payment for in the “notified” column; it is the
responsibility of the payable organisation to dispute that balance.
5.16. Payable Organisations: When recording the dispute, only record the element of a
transaction which is actually being disputed e.g. if an invoice for £70k only has a dispute
of £5k then only the £5k should be recorded. The full £70k would still be recorded under
“notified” as it was included on the statement by the receivable organisation. However,
the “Total” balance would be reduced by the entering of a negative £5k in the “disputes”
column, to show only £65k, which reflects the actual balance that the payable
organisation is recording in their accounts. The receivable body records £70k in their
return, with the dispute leading to a £5k mismatch between bodies.
5.17. A disputed balance would constitute a valid reason for a variance to exist on agreement
of the balances. Payables organisations with disputed balances must ensure that the
balance has been disputed for a valid reason, and not just to avoid clearance of
variances, and that the relevant national body has been informed in an effort to resolve
the dispute.
5.18. Annex 3 contains examples of where a disputed balance may be recorded.
216 Areas of potential Issues
Gross and Net Accounting & Recharges
THE DEFAULT TREATMENT IS FOR ALL TRANSACTIONS AND BALANCES TO BE
TREATED GROSS
6.1. The overarching principle is that transactions must be accounted for in accordance with
accounting standards, with all treatments having been agreed by both parties. IAS 1
states that “income and expenses, may not be offset unless required or permitted by an
IFRS. Generally, this means revenue income and expenditure must be recorded gross
unless the transaction is of a non-trading nature and an organisation is deemed to have
transferred risks and rewards and be acting solely as an agent. "Gross accounting"
refers to the separate recording of inflows and outflows in an entity's accounts,
recognising the impact on the entity's income and expenditure. "Net accounting" refers
to the netting off of inflows and outflows in an agency relationship, so that the entity only
recognises impacts to the extent that it is acting as a principal.
6.2. The accounting treatment of transactions should be agreed in advance between all
parties (including the care provider) to ensure consistency. If transactions are to be
recorded on a net basis, or as a recharge, organisations must seek to ensure that:
The accounting treatment of transactions is agreed between all parties to ensure
consistency; and
Agreements reached should be clear and auditable
The general principles are:
Transactions that are of a trading nature are to be shown gross by both parties;
Where an organisation acts solely as an agent from the transaction, the item
should be treated as a recharge and be accounted for net;
Receivables and payables should be recorded against the organisations actually
paying the invoices, even in an agency situation; and
Each circumstance should be assessed individually and treatment agreed
6.3. An entity is acting as a principal when it has exposure to the significant risks and
rewards associated with the sale of goods or the rendering of services. For example,
with a staff recharge relevant considerations might include who bears the risk if the
member of staff is off sick for a period and unable to work, among other factors. If the
receiving organisation would continue to pay the employing organisation in the event of
a period of sick leave, this might be a factor suggesting that the employing organisation
has transferred the risks. As noted in paragraph 6.2 each circumstance should be
assessed individually. Organisations should discuss with their external auditor if they
need to determine how to account for an arrangement.
6.4. In an agency relationship, the cash may pass from the principal to the agent in advance
of the delivery of any actual service. At this point, for the purpose of AoB, the agent
recognises a payable and the principal recognises a receivable. However, once the
third party has begun delivery of the service, they have earned some income and this is
then reflected in the receivables and payables.
226.5. In order to illustrate this, two examples are shown below relating to FT’s. NHS England
Commissioning entities operating in the ISFE environment should refer to separate
guidance issued by NHS England contained in Appendix 4.
23Reflecting gross and net accounting in the collection forms: staff recharges
Foundation Trust A is completing its collection forms. There are four scenarios for how it might have staff recharges with NHS Trust B.
1) Staff permanently employed on Foundation Trust A payroll. Foundation Trust A is recharging NHS Trust B.
(1a) GROSS FOR THE EMPLOYER (1b) NET FOR THE EMPLOYER
(i.e. risks and rewards remain with Foundation Trust A (i.e. risks and rewards passed to NHS Trust B – Foundation Trust A
– FT A is the Principal) therefore the agent)
Foundation Trust A: Record in income note with WGA code Nothing recorded in income note – items are netted off.
Income
Foundation Trust A: Record total staff costs as permanently employed against Record total staff costs as permanently employed. Record in 'business
Expenditure salaries and wages. Record as 'business external to external to government with no WGA codes attached to transaction.
government'1 with no WGA codes attached to transaction.
Record income received from WGA body in respect of recharge in
'Recoveries from bodies in respect of staff costs netted off expenditure' in
the employee benefits note. This would show as a negative amount to
represent receipt. It would be classified as 'external to government'
Overall staff costs would show nil assuming the recharge amount was for
full staff cost amount.
Impact Show gross income and gross staff costs Show no income and staff costs netted to £0
Equivalent for NHS NHS Trust B will record the expenditure in staff costs as NHS Trust B will record the expenditure in staff costs as ‘other’ (rather
Trust B ‘other’ (rather than permanently employed) and in the than permanently employed) but will record this as ‘external to
WGA analysis for Foundation Trusts. government– they are the organisation recording the principal element of
the employment cost.
Transaction Upon consolidation income for FT A will be eliminated with Upon consolidation staff costs from NHS Trust B will remain. Foundation
elimination for DH expenditure from NHS Trust B (both being WGA). FT A Trust A accounts will be already showing nil income and nil staff costs
consolidation staff costs will remain. (income netted off staff costs).
I
242) Staff permanently employed by NHS Trust B. Foundation Trust A is being recharged by NHS Trust B.
Type (2a) GROSS FOR THE EMPLOYER (2b) NET FOR THE EMPLOYER
(i.e. risks and rewards remain with NHS Trust B – NHS (i.e. risks and rewards passed to Foundation Trust A – the employer
Trust B is the Principal) NHS Trust B is the agent and does net accounting)
Foundation Trust A: n/a n/a
Income
Foundation Trust A: Record staff costs as 'Other' against Salaries and Wages. Record staff costs as 'Other' against Salaries and Wages. If net then all
Expenditure As the transaction is with another WGA body, then transactions would be classified as 'external to government'
transaction should have coding as ‘business with NHS
Trust’ and should be shown in that column.
Impact NHS Foundation Trust A shows staff costs paid in respect NHS Foundation Trust A shows staff costs paid in respect of the
of the individual, recorded as a WGA transaction. individual, recorded as an external transaction.
Equivalent for NHS NHS Trust B will follow the same approach as Foundation NHS Trust B will follow the same approach as Foundation Trust A did in
Trust B Trust A did in scenario (1a) above: scenario (1b) above:
Record income in income note (in WGA column for Record total staff costs as permanently employed. Record in 'business
‘business with foundation trusts’) external to government'. with no WGA codes attached to transaction.
Record total staff costs as permanently employed against Record income received from WGA body in respect of recharge in the
salaries and wages as ‘external to government’ employee benefits note. This uses the ‘recoveries netted off expenditure’
row in the employee benefits note. It would be classified as 'external to
government.
Overall staff costs would show nil assuming the recharge amount was for
full staff cost amount.
Transaction Upon consolidation the income recorded by NHS Trust B Upon consolidation, staff costs from NHS Foundation Trust A will remain.
elimination for DH will be eliminated against the expenditure recorded by NHS Trust B accounts will be already showing nil income and nil staff
consolidation Foundation Trust A. The NHS Trust B external staff costs costs.
will remain.
25I&E - Admin and Programme Split
6.6. The Department of Health & Social Care Consolidated Supply Estimate, which is voted
on by Parliament, splits out Admin and Programme expenditure. The Department is
managed against these admin and programme control totals and the breaching of either
could result in an Excess Vote accounts qualification and a Public Accounts Committee
Hearing. It is important that the amounts recorded as Admin or Programme within the
Department of Health & Social Care Consolidated accounts and the AoB exercise are
accurate, to avoid under or over eliminating programme or admin expenditure/income
as this would affect the performance against the Estimate. Therefore, when agreeing
balances, agreement bodies are expected to not just agree the balance, but also agree
the type. Whether balances are Admin or Programme will depend on the activity to
which the balance relates and the type of organisation the transactions are with.
6.7. It is expected that Department of Health & Social Care, CCGs, CSUs, NHS England
Local Offices, Regional Teams and some ALBs will have a split of admin and
programme I&E. NHS Foundation Trusts and NHS Trusts will only have programme
I&E. There are a number of ALB’s which have admin only; these are NHS Business
Services Authority, Health Research Authority, Human Fertilisation & Embryology
Authority, Human Tissue Authority and Professional Standards Authority.
6.8. In determining whether a transaction is admin or programme, organisations are asked to
refer to the DH Group Accounting Manual and the Financial Reporting Manual.
Generally, admin balances are incurred in running the organisation, with programme
incorporating all other balances. There will be occasions when it is not possible to
resolve mismatches on admin and programme, however each circumstance should be
assessed individually and treatment agreed should be clear and auditable.
I&E - Admin and Programme Split – NHS Property Services
In 2016-17, in response to feedback from NHS Property Services and
organisations across the Departmental Group with whom they do business, the
Department revisited the methodology by which NHS Property Services record
and agree the categorisation of their intercompany income and expenditure as
admin and programme. The revised methodology remains unchanged for 2017-18.
6.9. Due to the nature of their business, NHS Property Services have, to date, applied a
centrally calculated percentage to their income and expenditure to calculate the
proportion of admin and programme. Whilst this ensures an accurate admin and
programme split of accounts data for budgeting purposes, it has caused significant
problems in terms of the agreement of balances exercises and the Department believes
applying the counterparty view to agreement of balances transactions is a more
accurate method.
6.10. In response, NHS Property Services will no longer apply a generic split of admin and
programme to their intercompany income and expenditure. Income statements sent by
NHS Property Services will include total invoiced income but no split of admin and
programme. Other bodies whose expenditure (and income) is with NHS Property
Services should continue to derive, record and report their view of the correct
admin/programme split in their accounts and agreement of balances data (including
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